SMALL CAP SHARE IDEAS: Film production company FFI powers ahead thanks to acquisition

Film making is a risky business and before any cameras start rolling a visit to FFI Holdings is usually in order.

FFI is the world’s leading issuer of completion contracts.

They do what it says on the can. If a film is not completed or runs late, the contract kicks in and it is beholden on the contract issuer to make sure the film gets made or the backers get some or all of their investment back.

‘These contracts help offload risks to production budgets and timelines for financiers, as well as for FFI through long-standing insurance relationships,’ it said.

From the first Bond film, Dr No, in 1962 to The Hunger Games in 2012 and last year’s blockbuster La La Land, FFI has issued contracts on approximately 1,700 productions with gross budgets in excess of $17billion.

Having come up with the idea of completion contracts in the first place the group has an 80 per cent share of the market

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Founded in 1950 in the UK, the HQ is now in Los Angeles with the first completion contracts recently signed in China.

Trading last year was good with underlying profits of $12.7million on revenues of $38.8million, up 9 per cent.

Those strong numbers helped FFI raise $35.6million when it listed on AIM in June.

Using that cash the emphasis has switched to ancillary services such as post production work and equipment rental.

FFI Holdings at a Glance

AIM ticker: FFI

Value: £238million

Share price: 153p

Listed at: 150p

November saw the acquisition of digital post-editing equipment rental group Cineworks Digital Studios, its first deal since listing on AIM.

EPS-Cineworks has a strong market presence in North America, especially in post-production work for television and independent projects.

Growth here is being driven by smaller content providers such as streaming companies that do not have post-production capabilities.

Sales were $9.4million in 2016 on which EPS-Cineworks made underlying profits of $2.7million.

EPS-Cineworks management is staying on and FFI sees many synergies between the business and Pivotal Post, which was acquired in February 2017. Kevin Hyman, Pivotal Post’s chief executive, will manage the combined operation.

Steven Ransohoff, FFI’s chief executive, said: ‘[This] transaction underscores FFI's commitment to expanding its ancillary business offerings, in line with the diversification strategy we set out at the time of our IPO.’

House broker Liberum said the acquisition will give FFI 50-60 per cent of the post-production market to add to its dominance in completion contracts.

FFI has also issued contracts on The Hunger Games (2012)

The Cineworks business is split 25 per cent theatrical and 75 per cent televisions, which is the mirror image of Pivotal.

Through its relationship with Spielberg, Pivotal also has some high tech equipment that it can share with EPS-Cineworks.

‘Post-production should be a growth market given the rise in the amount of content coming from streaming companies, who do not have traditional post production capabilities.

‘The business has an attractive EBITDA margin [profit] of 29 per cent, which can be increased though the synergies.’

Liberum added the price for EPS-Cineworks looks modest and the broker has a target price of 182p. Shares were trading at 153p, valuing the company at around £238million.